IDEAS home Printed from https://ideas.repec.org/p/col/000566/020926.html

Integration and Financial Stability: A Post-Global Crisis Assessment

Author

Listed:
  • Iader Giraldo

    (FLAR)

  • Iader Giraldo

    (FLAR)

  • Jose E Gomez-Gonzalez

    (Department of Finance, Information Systems, and Economics, City University of New York – Lehman College, Bronx)

  • Jorge M Uribe

    (Faculty of Economics and Business, Universitat Oberta de Catalunya)

Abstract

In this study, we revisit the debate regarding the effects of financial openness on financial stability. In contrast to previous studies, our approach involves measuring the direct influences of openness on stability through a varied set of proxies used to capture the diverse dimensions of both of these concepts within a unified estimation framework. Employing state-of-the-art machine learning techniques, our estimates enable us to isolate the focal effects while controlling for a comprehensive set of macroeconomic, political, and institutional variables. Covering the period spanning 2010 to 2020 across 45 countries, our results indicate that, in the majority of cases, increased financial openness is beneficial for financial stability. Greater levels of integration tends to reduce the ratio of nonperforming loans to total loans, concurrently improving capital adequacy ratios and the ratio of provisions to nonperforming loans. Additionally, heightened openness leads to an increase in the levels of bank liquidity. Importantly, these enhancements to financial stability occur without any adverse effects on bank profitability. This suggests that policies aimed at fostering greater integration with global financial markets and promoting increased bank competition can exert positive impacts on financial stability without compromising bank profitability.

Suggested Citation

  • Iader Giraldo & Iader Giraldo & Jose E Gomez-Gonzalez & Jorge M Uribe, 2024. "Integration and Financial Stability: A Post-Global Crisis Assessment," Documentos de trabajo 20926, FLAR.
    • Handle: RePEc:col:000566:020926
    as

    Download full text from publisher

    File URL: https://flar.com/wp-content/uploads/2024/01/Paper_Integration-and-Financial-Stability_A-Post-Global-Crisis-Assessment.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sorensen, Bent E. & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2007. "Home bias and international risk sharing: Twin puzzles separated at birth," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 587-605, June.
    2. Igan, Deniz & Kutan, Ali M. & Mirzaei, Ali, 2020. "The real effects of capital inflows in emerging markets," Journal of Banking & Finance, Elsevier, vol. 119(C).
    3. Christopher Baum & Madhavi Pundit & Arief Ramayandi, 2015. "Openness and financial stability," EcoMod2015 8652, EcoMod.
    4. Neanidis, Kyriakos C., 2019. "Volatile capital flows and economic growth: The role of banking supervision," Journal of Financial Stability, Elsevier, vol. 40(C), pages 77-93.
    5. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-954, July.
    6. Forbes, Kristin J., 2007. "One cost of the Chilean capital controls: Increased financial constraints for smaller traded firms," Journal of International Economics, Elsevier, vol. 71(2), pages 294-323, April.
    7. Josef Schroth, 2016. "Capital Flows to Developing Countries: Is There an Allocation Puzzle?," Staff Working Papers 16-53, Bank of Canada.
    8. Michael R. Pakko, 1998. "Characterizing Cross-Country Consumption Correlations," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 169-174, February.
    9. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, vol. 89(2), pages 258-270, July.
    10. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    11. Fecht, Falko & Grüner, Hans Peter & Hartmann, Philipp, 2012. "Financial integration, specialization, and systemic risk," Journal of International Economics, Elsevier, vol. 88(1), pages 150-161.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giraldo, Carlos & Giraldo, Iader & Gomez-Gonzalez, Jose E. & Uribe, Jorge M., 2024. "Financial integration and banking stability: A post-global crisis assessment," Economic Modelling, Elsevier, vol. 139(C).
    2. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, December.
    3. Li, Zhongda & Liu, Lu, 2018. "Financial globalization, domestic financial freedom and risk sharing across countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 151-169.
    4. Mirdala, Rajmund & Svrčeková, Aneta & Semančíková, Jozefína, 2015. "On the Relationship between Financial Integration, Financial Liberalization and Macroeconomic Volatility," MPRA Paper 66143, University Library of Munich, Germany.
    5. William R. Cline, 2010. "Financial Globalization, Economic Growth, and the Crisis of 2007-09," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 499, January.
    6. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    7. Mansoor Mushtaq & Gulnaz Hameed & Nasir Mahmood & Muhammad Hanif, 2026. "Financial Development, Financial Globalization, and Economic Growth Volatility: A Comparative Analysis for Developing and Developed Economies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 17(1), pages 1847-1875, February.
    8. Donadelli, M. & Gufler, I. & Paradiso, A., 2024. "Financial market integration: A complex and controversial journey," International Review of Financial Analysis, Elsevier, vol. 92(C).
    9. Peter Fuleky & Luigi Ventura & Qianxue Zhao, 2018. "Common correlated effects and international risk sharing," International Finance, Wiley Blackwell, vol. 21(1), pages 55-70, March.
    10. Lee, Kuan-Hui & Yang, Cheol-Won, 2022. "The world price of tail risk," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    11. Giraldo, Carlos & Giraldo, Iader & Gomez-Gonzalez, Jose E. & Uribe, Jorge M., 2023. "Banks' leverage in foreign exchange derivatives in times of crisis: A tale of two countries," Emerging Markets Review, Elsevier, vol. 55(C).
    12. Boikos, Spyridon & Panagiotidis, Theodore & Voucharas, Georgios, 2022. "Financial development, reforms and growth," Economic Modelling, Elsevier, vol. 108(C).
    13. Pilar Poncela & Filippo Pericoli & Anna Manca & Filippo Michela Nardo, 2016. "Risk Sharing in Europe," JRC Research Reports JRC104621, Joint Research Centre.
    14. Yiping Huang & Xue Wang & Xun Wang, 2020. "Mobile Payment in China: Practice and Its Effects," Asian Economic Papers, MIT Press, vol. 19(3), pages 1-18, Fall.
    15. Michael Donadelli & Ivan Gufler, 2021. "Consumption smoothing, risk sharing and financial integration," The World Economy, Wiley Blackwell, vol. 44(1), pages 143-187, January.
    16. Thomas A. Knetsch & Arne J. Nagengast, 2017. "Penny wise and pound foolish? On the income from Germany’s foreign investments," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 753-778, November.
    17. Atanas CHRISTEV & Jacques MELITZ, 2010. "EMU, EU, Capital Market Integration and Consumption Smoothing," Working Papers 2010-06, Center for Research in Economics and Statistics.
    18. Don Harding & Adrian Pagan, 2006. "The Econometric Analysis of Constructed Binary Time Series," Department of Economics - Working Papers Series 963, The University of Melbourne.
    19. Balli, Faruk & Basher, Syed Abul & Rana, Faisal, 2014. "The determinants of the volatility of returns on cross-border asset holdings," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 1-23.
    20. Daragh Clancy & Lorenzo Ricci, 2019. "Loss aversion, economic sentiments and international consumption smoothing," Working Papers 35, European Stability Mechanism.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000566:020926. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fondo Latino Americano de Reservas (email available below). General contact details of provider: https://flar.com/publicaciones/#trabajo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.